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Liberty Global/Ziggo merger

2017-756 – KPN BV v European Commission

Court General Court
Date of ruling 26 October 2017
Case name (short version) KPN BV v European Commission
Case Citation T-394/15 P

ECLI:EU:T:2017:756

Key words Competition — Concentrations — Netherlands market for television services and telecommunications services — Decision declaring the concentration compatible with the internal market and the EEA Agreement — Commitments — Duty to state reasons — Relevant market — Vertical effects — Judicial review
Basic context KPN BV successfully appealed the annulment of Commission Decision C(2014) 7241 final of 10 October 2014 declaring the concentration involving the acquisition by Liberty Global plc of sole control over Ziggo NV to be compatible with the internal market and the EEA Agreement (Case COMP/M.7000 — Liberty Global/Ziggo) (OJ 2015, C 145, p. 7)
Points arising – admissibility
Points arising – substance There is no need to examine the first and third pleas in law, both of which relate to alleged manifest errors of assessment, inter alia, as regards the vertical effects of the proposed concentration on the market for premium pay TV sports channels.

 

The second plea in law, alleging a breach of the duty to state reasons

 

49     It is clear from settled case-law that the statement of reasons required by Article 296 TFEU must be appropriate to the measure at issue and must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in question in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the competent European Union Court to exercise its power of review. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 296 TFEU must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question (see judgment of 10 July 2008, Bertelsmann and Sony Corporation of America v Impala, C‑413/06 P, EU:C:2008:392, paragraph 166 and the case-law cited).

 

50      The institution which adopted the measure is not required, however, to define its position on matters which are plainly of secondary importance or to anticipate potential objections. Moreover, the degree of precision of the statement of the reasons for a decision must be weighed against practical realities and the time and technical facilities available for making the decision. Thus, the Commission does not infringe its duty to state reasons if, when exercising its power to examine concentrations, it does not include precise reasoning in its decision as to the appraisal of a number of aspects of the concentration which appear to it to be manifestly irrelevant or insignificant or plainly of secondary importance to the appraisal of the concentration. Such a requirement would be difficult to reconcile with the need for speed and the short timescales which the Commission is bound to observe when exercising its power to examine concentrations and which form part of the particular circumstances of proceedings for control of those concentrations (judgment of 10 July 2008, Bertelsmann and Sony Corporation of America v Impala, C‑413/06 P, EU:C:2008:392, paragraph 167).

 

51    In that regard, while it is true that the Commission is not obliged, in the statement of reasons for decisions adopted under the legislation relating to the control of concentrations, to take a position on all the information and arguments relied on before it, including those which are plainly of secondary importance to the appraisal it is required to undertake, it nonetheless remains the case that it is required to set out the facts and the legal considerations having decisive importance in the context of the decision. The reasoning must in addition be logical and must not disclose any internal contradictions (judgment of 10 July 2008, Bertelsmann and Sony Corporation of America v Impala, C‑413/06 P, EU:C:2008:392, paragraph 169).

 

 

57      However, the fact remains that the contested decision does not analyse the effects of the transaction on the possible market for the wholesale supply and acquisition of premium pay TV sports channels, in which the only two channels present would be Sport1, which is owned by Liberty Global, and Fox Sports, which is owned by a third party. It is true that the contested decision refers to Sport1 and Fox Sports on several occasions. However, it does not contain any analysis regarding the vertical effects which would arise out of the proposed concentration if the relevant product market were defined as that of the wholesale supply and acquisition of premium pay TV sports channels. Consequently, all the references to Sport1 and Fox Sports in the contested decision are made within another analytical framework.

 

58      In that regard, it must be pointed out that, as is apparent from recitals 84 to 86 of the contested decision and from the answers to the questions put by the Court at the hearing, the Commission acknowledged that the market for the wholesale supply and acquisition of pay TV channels could be further segmented according to whether they consisted of film or sports channels. The Commission added, in recital 86 of the contested decision, that that question could ‘be left open as the assessment of the proposed transaction would remain the same’. It follows that the Commission left open the precise definition of the relevant product market because, even if there were additional segmentation, the concentration could be declared to be compatible with the internal market because there were no competition concerns.

 

59      That approach of leaving open the precise definition of the relevant market required the Commission to explain, at least briefly, the reasons why the proposed transaction, including the vertical effects on the possible market for the wholesale supply and acquisition of premium pay TV sports channels, did not raise any competition concerns, in such a way as to enable the persons concerned to ascertain the reasons for that view and to enable the EU judicature to exercise its power of review with regard to the Commission’s assessment.

 

60      The importance of a statement of reasons on that point cannot be underestimated. According to settled case-law, a proper definition of the relevant market is a necessary precondition for any assessment of the effect of a concentration on competition (judgments of 31 March 1998, France and Others v Commission, C‑68/94 and C‑30/95, EU:C:1998:148, paragraph 143, and of 7 June 2013, Spar Österreichische Warenhandels v Commission, T‑405/08, not published, EU:T:2013:306, paragraph 116). The EU judicature has accepted that the Commission could leave open the definition of the relevant product market to the extent that none of the possible market definitions could lead to a finding of a significant impediment to effective competition following the concentration, provided it was clearly and unequivocally demonstrated by the reasons given by the Commission in the decision in question (see, to that effect, judgment of 8 July 2003, Verband der freien Rohrwerke and Others v Commission, T‑374/00, EU:T:2003:188, paragraphs 107 and 110).

 

61      It must be stated that, when questioned on that point by the Court at the hearing, the Commission admitted that the contested decision did not contain any express reasoning regarding that question, even though it also admitted that a market for the wholesale supply and acquisition of premium pay TV sports channels was conceivable.

 

62      Furthermore, as the Commission admits in its defence and as is apparent from the annexes to the application, the applicant alleged on a number of occasions during the administrative procedure that there were vertical concerns relating specifically to Sport1.

 

63      It follows that, on that point, the contested decision does not satisfy the requirements for the statement of reasons required by Article 296 TFEU. None of the arguments put forward by the Commission can cast doubt on that finding.

 

64      First, in its defence, the Commission submits that the contested decision expressly stated in recital 211 that Liberty Global did not have the ability to foreclose the market because it did not have any upstream market power, since it owned only one of the two premium pay TV sports channels. Apart from the fact that that section of the contested decision relates to the analysis of the horizontal effects, as is, moreover, clear from the wording of that recital, it must be stated that the mere fact that Sport1 has a competitor, namely Fox Sports, does not, in the absence of any analysis of their respective market positions and their competitive relationships, in itself rule out the possibility that Liberty Global may have upstream market power in the segment in question. For example, the fact that an undertaking with a market share of 70% has one competitor does not, without any additional analysis, mean that it has no market power.

 

65      It must be added that, in reply to the questions put by the Court at the hearing, the Commission admitted that the contested decision did not contain any express reasoning as to why Sport1 would not have any upstream market power in the segment in question.

 

66      Second, as regards the argument relating to the absence of structural changes on the possible market for premium pay TV sports channels which, in the Commission’s view, makes the issue of vertical effects on that market one of secondary importance, it must be pointed out that the proposed transaction entailed downstream structural changes, in particular with the joining together of Liberty Global’s and Ziggo’s respective distribution platforms.

 

67      Third, the Commission submits that recital 221 of the contested decision shows that it took Sport1 into account in its analysis of the vertical effects of the concentration. However, it is clear from its wording that that recital relates to a situation in which the product market at issue is defined as encompassing all the premium pay TV channels. Consequently, that recital did not relate to an analysis of the vertical effects on the possible market for the supply of premium pay TV sports channels. Furthermore, in that recital, the Commission confines itself to stating that Liberty Global would have market power in the upstream market for the supply of premium pay TV channels. That finding does not make it possible to draw any conclusions as to Liberty Global’s alleged lack of market power as regards the wholesale supply of premium pay TV sports channels.

 

68      Fourth, the Commission submits that detailed reasoning is not necessary, since the contested decision mentions all the factual elements which show that there could not be a vertical foreclosure concern in relation to Sport1. According to the Commission, that is the result, in particular, of the continued presence of Fox Sports as a strong competitor owned by a third party.

 

69      In that regard, it must be pointed out that, as regards the market for the wholesale supply of premium pay TV sports channels, the only finding that emerges clearly from the contested decision is that there is an independent competitor, namely Fox Sports. In particular, the contested decision remains silent regarding the respective market positions and competitive relationships of Fox Sports and Sport1, with the exception of Liberty Global’s claim, set out in recital 191 of the contested decision, that Sport1 was just breaking even.

 

70      However, as has been stated above, the presence of a competitor does not preclude a company from having market power, in particular if the competitor has a weak position on the market. Even though the Commission puts forward numerous arguments in the context of the first plea in the present action in order to show that Liberty Global did not, owing to the presence of Fox Sports, have the ability to engage in a foreclosure strategy and would not have the incentive to do so, the fact remains that those arguments are not set out in the contested decision. What is more, the argument as to the low profitability of Sport1 is set out in the section of the contested decision relating to the notifying party’s arguments and not in that relating to the Commission’s assessment, which does not make it possible to conclude that that low profitability was regarded as a proven fact in the contested decision and that that decision was based on it.

 

71      Fifth, as regards the argument relating to the need for speed and the short timescales with regard to the examination of concentrations (judgment of 13 May 2015, Niki Luftfahrt v Commission, T‑162/10, EU:T:2015:283, paragraph 100) in the light of the low probability of vertical anti-competitive effects on the possible market for premium pay TV sports channels, it must be stated that the decisive element in the present case lies in the fact that, initially, the Commission decided to leave open the definition of the relevant product market because, in its view, there would be no competition concerns in any event. Consequently, the Commission could not, subsequently, avoid its obligation to explain, at least briefly, why there would be no vertical competition concerns regarding the possible market for premium pay TV sports channels.

 

72      Lastly, as regards the argument relating to alleged implicit reasoning, which the Commission reiterated at the hearing, the judgment of 7 January 2004, Aalborg Portland and Others v Commission (C‑204/00 P, C‑205/00 P, C‑211/00 P, C‑213/00 P, C‑217/00 P and C‑219/00 P, EU:C:2004:6), states, in paragraph 372, to which the Commission refers in its written pleadings, that the reasoning may be implicit on condition that it enables the persons concerned to know why the measures in question were taken and provides the competent court with sufficient material for it to exercise its power of review. It is sufficient to state that in the present case those conditions are not satisfied because, from a reading of the contested decision, it is impossible for the EU judicature to exercise its power of review with regard to the reasons, apart from the mere presence of an independent competitor, which may have led the Commission to find that there were no vertical competition concerns on the possible market for premium pay TV sports channels.

 

73      Furthermore, the contested decision does not state that the structure and the functioning of the market for premium pay TV sports channels are similar to those on the market for premium pay TV film channels, a point which, moreover, the applicant disputes. Consequently, it cannot be maintained that the contested decision implicitly contains reasoning relating to the vertical effects on the possible market for premium pay TV sports channels, that is to say, reasoning relating to the vertical effects on the possible market for premium pay TV film channels which is applicable by analogy.

Intervention
Interim measures
Order 1.      Annuls Commission Decision;

2.      Orders the European Commission to pay the costs.

Fine changed
Case duration 26 months
Judge-rapporteur A.M. Collins
Advocate-general
Notes on academic writings

 

About the Author

Kiran Desai

Desai Kiran

Kiran S. Desai has over 25 years’ experience of private practice in EU competition law. He is engaged in all aspects of EU competition law, including litigation before the courts and has written extensively on EU competition law matters. He is a partner at HVG advocaten-avocats, based in Brussels, and is the EU Competition Law Leader for EY Law.


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